Okay Airways changes strategy in response to high-speed rail threat

Okay Airways' Acting Vice Presiden,t Liu Jieyin, stated in response to the proposed opening of the Beijing-Shanghai high-speed rail at the end of this month, the carrier will introduce first-class seating to attract premium passengers (Carnoc.com/Xinhua, 15-Jun-2011). Okay plans to target free independent travellers and premium travellers to maximise profits. Mr Liu also stated the carrier has submitted applications to CAAC to launch international services to surrounding nations.

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There are two essential elements to the airline industry: flying aeroplanes and selling (and buying) seats. More technically this can be described as (1) operational; and (2) marketing and sales. There are other important activities, such as lobbying government to limit competition, and exploiting frequent flyer programmes, but those two are the core activities now facing disruption.

The former is unique to airlines, is uniquely regulated and engages massive governmental regulatory intervention, technical and economic. The marketing and sales activity has some aspects particular to aviation, but generally differs little from any other form of retail – except that most older airlines have tended to be particularly slow at learning the art.

This analysis reviews the nature and degree of disruption in each core area and what potential the future holds. In the regulatory area, China will be the big disruptor as it expands into its new global role; and technology and the associated rise in consumer empowerment will transform the process of buying and selling tickets. It will happen sooner than we expect.

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Overall seat capacity will be up by 5% to 6% in 2017. Passenger numbers could potentially increase by more than 10% as Malaysia Airlines aims to significantly improve its load factor on the back of new lower fares.